Upcoming inflation data to show calm before the storm
A category five inflation storm is weighing on Australian consumers.
While the war in the Middle East continues to shake global energy markets, its impact is also beginning to be felt domestically.
Not only do drivers feel like they are at the pump when refueling, but many industries, from construction to aviation, are warning that prices will also increase due to the rising cost of fuel.
The impact of the conflict on already high inflation led the Central Bank to raise interest rates for the second consecutive month on Tuesday.
Money markets have doubled down on bets that the RBA will make another move in May, amid rising inflation expectations as the war drags on.
The central bank will closely examine February inflation data due to be published by the Australian Bureau of Statistics on Wednesday.
Belinda Allen, Commonwealth Bank’s head of Australian economics, said the statement would provide an update on how prices were trending before the conflict.
He expects annual headline inflation to fall from 3.8 percent to 3.7 percent, driven in part by a 2.8 percent drop in fuel costs.
Gas prices approaching $3 per liter means the calm before the storm.
NAB senior economist Taylor Nugent said the ABS’s February reference period preceded the latest rise in fuel prices, which are set to rise above 25 per cent by March.
“Overall, the cost shock from the Middle East will emerge first and most clearly through automotive fuel prices, which will contribute approximately one percentage point to the March CPI, bringing the year-end rate to around 4.6 percent,” he said.
He said that higher flight tickets will be issued for domestic flights starting from April and for international flights starting from May, and that high costs in other sectors such as transportation, logistics, agriculture, packaging, manufacturing and construction will become evident in the coming months.
None of these will appear in Wednesday’s data.
But luckily for the RBA, March inflation data will be published before the next meeting in May, providing a much clearer impression of the direction of the post-conflict economy.
The rise in fuel costs will not show up in the RBA’s preferred three-month truncated average measure of inflation, which excludes variable items.
Mr Nugent said most of the impact would only be felt in the June quarter as the price increase occurred towards the end of the quarter, with NAB currently forecasting headline inflation to peak at five per cent.
“(March) data has been overshadowed in some ways by events but remains important as the RBA refines its assessment of what inflationary domestic conditions were like before the Iran shock,” he said.
Investors on Wall Street are similarly worried about inflation and higher interest rates and appear resigned to the fact that the Iran conflict will last longer than expected.
S&P 500 index lost 99.01 points (1.49 percent) to 6,508.32 points, Nasdaq Composite decreased 436.98 points to 21,653.71 points, Dow Jones Index decreased 422.32 points to 45,599.11 points.
Australian stock futures fell 156 points, or 1.83 percent, to 17,617.
The ASX was trading at its weakest level in nine months, with the S&P/ASX200 down 69.4 points, or 0.82 per cent, to 8,428.4 on Friday, while the broader All Ordinaries lost 62.4 points, or 0.72 per cent, to 8,628.3.
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